Client was a C-level officer in one of the worlds largest technology companies. During approximately 15 years of employment, the client had accumulated approximately one million shares of publicly traded stock. The year was 2000 and the market was tenuous at best. A substantial portion of the client’s position was still restricted. The current value of the client’s position was approximately $40 million. The client wanted to diversify his holdings and create a floor for the equity, while maintaining upside potential.

The Waterloo Way

Waterloo’s principal worked with a premier derivatives team to create a solution that would accomplish all of the client’s goals. The recommendation was a combination of “collars” and “pre-paid forwards.” By utilizing custom derivatives, the client was able to diversify his portfolio, protect restricted securities with a floor roughly 11% below current pricing, and maintain the potential for upward equity movement. As it turned out, the domestic equity market began to free-fall. The client’s position would ultimately fall by 80%, but because of their derivative positions, they were protected and only realized an 11% decline. Thereby, the client maintained virtually all of their net worth and the ability to continue living their current lifestyle.

For more information about this case study, please contact John Chatmas or call (512) 693-4363.